Elon Musk has warned that Twitter’s board of directors will face “titanic” legal liability if it goes against shareholders’ interests by rejecting its $ 43 billion hostile takeover.
The Twitter board met for several hours on Thursday afternoon to discuss Musk’s proposal and reportedly considered several options to block the offer. The official response may take several days.
In response to reports that the board is considering a “poison pill” plan that would prevent it from increasing its stake in Twitter, Musk tweeted: “If the current Twitter board takes action against the interests of shareholders, they would violate their fiduciary duty . ”
“The responsibility they would take in this way would be titanic in scale,” he added, apparently referring to potential lawsuits by shareholders.
Twitter CEO Parag Agraval, who also sits on the board, insisted the company was not “held hostage” by Musk as he tried to calm panicked generals on Thursday.
Elon Musk warns that Twitter’s board of directors will face “titanic” legal liability if it runs counter to shareholders’ interests in rejecting its $ 43 billion hostile takeover
The Saudi prince claims to be a major shareholder on Twitter, but his true share is unclear
On Thursday, Saudi Prince Alwaleed bin Talal tweeted that he “rejected” Musk’s offer and claimed to be one of Twitter’s “biggest” shareholders.
Bin Talal attached a screenshot of a 2015 announcement that his investment firm owned 5.2% of Twitter.
But in 2016, bin Talal reduced his stake to less than 5 percent and did not have to report any other deals.
This means that the true share of Saudis on Twitter is unclear – although it is certainly less than 5 percent, it may even be zero.
The members of the board of a public company are obliged to act in the best financial interest of their shareholders – but this does not mean that the board of Twitter should accept Musk’s deal.
Although it would be a clear violation of the fiduciary obligation to reject a buyout offer and accept a lower offer, the Twitter board could probably find legal cover to reject Musk’s offer, saying it believes underestimates the company.
This is just an argument made by a alleged shareholder, Saudi Prince Alwaleed bin Talal, on Thursday, drawing a sharp response from Musk, who questioned “Saudi Arabia’s views on journalistic freedom of speech.”
It is not clear what share bin Talal has on Twitter, if any, but regulatory documents show it is just under 5 percent.
If they reject Musk’s offer, the Twitter board may also say it is not confident he will be able to secure funding for the deal – which means that questions about where the money will come from could be central in the coming days.
Although Musk is the richest man in the world, with a fortune of $ 273.6 billion, according to Forbes estimates, most of his wealth is tied to shares in Tesla and SpaceX and it is unclear how much money he has.
Musk has not said where he will get the money for the deal, and his regulatory dossier vaguely states that the buyout offer is subject to “completion of expected funding”.
At a conference on Thursday, Musk said he had “enough assets” to buy Twitter out of his own pocket, but also suggested the deal could fail.
“I think it’s going to be a little painful and I’m not sure I can actually get it,” he said.
Twitter CEO Parag Agraval, who also sits on the board, insisted the company was not “held hostage” by Musk as he tried to calm the panicked employees.
Dan Ives, an analyst at Wedbush Securities, estimates that Musk will have to provide additional funding of 15 to 20 billion dollars
Musk owns about 17 percent of Tesla, a $ 17 trillion company, and can raise cash by selling shares or using shares as collateral for loans.
However, Musk said earlier that he wanted to avoid reducing his stake in Tesla, if at all possible.
Although he sold huge stakes in Tesla last year, he had to pay taxes, and he actually turned out to have a slightly larger stake in the company due to the acquisition of options.
Musk will have to sell about 43 million shares of Tesla to fund the Twitter deal, which is likely to reduce Tesla’s share price and reduce its stake in Tesla to about 13 percent.
Another option would be to use Tesla shares as collateral for loans. However, Tesla restricts executives from using no more than 25 percent of their company’s stock as collateral for loans, and Musk has already pledged some of his stock for other loans, documents show.
Traditional debt financing would be another possible option for Musk. In this way, the bank will provide a loan for the purchase and the debt will be added to Twitter’s balance sheet and will be repaid with the company’s cash flow.
However, Musk revealed in documents that Morgan Stanley is his “financial adviser” on the deal, and the investment bank is not known for pooling the large-scale debt financing that will require the Twitter deal.
Tesla shares fell 3.7 percent on Thursday amid fears that Musk would sell shares to buy Twitter
Twitter’s share price remains below the level of Musk’s offer of $ 54.20, which suggests that the market is not sure whether his offer will be accepted by the board
Morgan Stanley may merge with other major banks, better known for similar deals, but Musk has already burned some bridges in that arena.
JPMorgan Chase, for example, is currently involved in lawsuits and counterclaims with Tesla over Musk’s tweets and controversial bond deals.
Another option for Musk would be to merge with a private investment company.
This is the path he is considering in 2018, when he famously tweeted that he has “secured funding” to make Tesla private at $ 420 per share.
In that case, he consulted with Silver Lake, a technology-focused private investment company run by Egon Durban – who happens to be on Twitter.
Durban joined the Twitter board in 2020 as part of a deal the company struck with another activist investor, Elliot Management, who wanted to shake up the company’s management.
But any chance of Durban joining forces with Musk to fund the takeover seems precluded from a deal he made to get a seat on the board, which limits Silver Lake from acquiring more than 5 percent of the company.
As for other private equity firms, it seems unlikely that they will find Twitter an attractive target.
Private equity firms typically target companies that spend a lot of money using cash flow and cost reductions to pay off debts incurred in buying the firm.
However, Twitter had a negative cash flow of $ 370 million last year and does not appear to be a candidate for positive cash flow in the near future.
Musk appeared at the TED2022 conference on Thursday, saying he was pursuing a hostile takeover of Twitter not for financial gain but for “the future of civilization.”
Taken together, all the warnings mean that the Twitter board may use funding concerns as a reason to reject Musk’s proposal.
However, Musk said on Thursday that he had a “Plan B” if the Twitter board voted against his deal.
The board reportedly considered looking for a “white knight” on Thursday to make a competitive bid, as well as a “poison pill” to prevent Musk from raising his bet.
Also known as shareholder rights plans, poison pills usually trigger an automatic dilution of shares by flooding new shares if the corporate attacker’s share of ownership increases too large.
In the case of Twitter, the idea would be to prevent Musk from increasing his stake by 9.2 percent to pressure the board to accept his deal.
If the board has taken a poison pill, Musk may still be pursuing a takeover through what is known as a tender offer.
The tender includes a direct call to shareholders to buy their shares at a prescribed price, usually above the current market value, at some point.
Usually the offer is triggered only if a certain percentage of shareholders accept the offer.
If Musk wins more than 50 percent of Twitter’s voting shares through such a bid, he will effectively control the company.
In separate tweets on Thursday, Musk said it would be “completely unprotective” not to allow shareholders to vote directly on his plan. “They own the company, not the board of directors,” he wrote.
Musk’s offer to buy Twitter raises as many questions as it answers
Why is Musk interested in Twitter?
Speaking at the TED2022 conference in Vancouver on Thursday afternoon, Musk defended his takeover bid, saying he was motivated to turn Twitter into a bastion of free speech.
“It’s not about economics,” Musk said. “My strong intuitive feeling is that I have a public platform that is trusted to the fullest and most inclusive, important for the future of civilization.”
How will Musk finance the offer?
The richest man in the world is trying to buy all of Twitter, but has not disclosed funding details in his offer to buy.
Elon Musk, whose net worth is approximately $ 270 billion, has offered to buy the social media platform in a generous $ 41.39 billion deal.
However, the entrepreneur’s wealth is stored mostly in shares of Tesla, a company that limits how much Musk can borrow against his shares.
Musk sold more than $ 15 billion in shares to Tesla, about 10 percent of his stake in the electric vehicle maker, late last year to settle a tax.
The billionaire has also burned bridges with several major lenders, such as JPMorgan Chase, which is why analysts say his choice of investment bank Morgan Stanley to act as financial adviser on his proposal is remarkable.
What is happening now?
SpaceX boss Elon Musk has launched his offer to take over Twitter, but the company’s board of directors still has the right to reject his offer.
The billionaire entrepreneur issued a tender offer on Thursday morning to buy all shares of Twitter for $ 54.20 for …
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